In order to avoid getting into tax debt, you must file your tax returns promptly and accurately. Keeping a file of your transaction records is very important so that you don't miss out on anything when it's time to file your tax return. However, they can accumulate over time so you need to check your files every now and then to make sure that you don't keep the ones you no longer need!
Some transaction records need not stay in your files too long. Examples of these are ATM receipts and deposit slips. You can discard them right after you find the corresponding transaction on your monthly bank statement. You can also throw away your cable, telephone and utility bills once you have received the new bill showing your latest payment. You will not need these! The same thing applies to your credit card statements as well. However, you may still want to keep your bills if you think your going to need it later as reference for tax exemption.
You can keep a file of your monthly bank statements until you receive your year-end statement. After you have checked that the year-end statement is accurate, you can trash the monthly statements. Even after you have already filed your tax return, you still need to keep those year-end statements for the next three years. For those who are self-employed, you can keep those statements for up to six years.
If you have purchased stocks or funds, you must keep any documents relating to them for as long as you have those investments. Make sure you also keep year-end statements of these types of investments. This may come handy when you sell your shares.
Although it is ok to discard your tax returns after six years, you may want to keep them for record purposes. Your tax return contains information that you may need in the future. Supporting documents like cancelled checks, receipts, etc. can go to the trash bin. Once you have received your W-2, you won't need your pay stubs, so that can also go. You may still want to retain receipts for home improvement expenses. You may need them if ever you have to sell the house, so you can show how much you have spent.
In discarding paper documents, always make sure that you destroy them thoroughly to save yourself from being a victim of identity theft. It is best to shred statements, bills and other important documents before you throw them away.
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